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ACM Journal - Investment Management
14 Jan

Chris’s Corner – Q4 2021 Newsletter

A not so new New Year! Most of us planner types spent 2021 worrying about one thing or another. For some of us, a lot of frenetic energy was spent on the projected, proposed, and much debated financial changes that the President, and much of Congress, hoped would reboot a lot of well-established financial plans.

Proposals included the removal of stepped-up cost basis upon death, annual taxation of unrealized capital gains, raising income and capital gains tax rates, lowering the estate and gift tax exemptions, taxation of grantor trusts, surcharging ultra-high earners, forced distribution of mega IRAs, and cancelling Roth conversions. While we remain neutral on the merits of the bill, the original Build Back Better Act proposal threatened highly significant changes to the accepted tenets of financial planning that we have been working with for years.

Although not unprecedented, it is rare for Congress to retroactively enact tax legislation, likely locking in the established rules for 2021 and, for now, 2022. Although Congress does have some upcoming deadlines, including passing a bill to keep the government running by February 19, 2022, and ongoing political chatter and proposals that would have impact to our financial plans, they seem less likely to pass and less radical in nature. With the upcoming midterm elections and continued political wrangling, it’s likely that anything that does get approved won’t knock the wheels off the apple cart as originally expected.

As we embark on a new tax year and reflect on the past one, it seems like a good time to remind ourselves to not get too excited about headlines and proposals. Though, it is also true that nothing is permanent except change. We can now focus our time and energy on the 2025 sunset date of the current Tax Cuts and Jobs Act (TCJA).

The TCJA was created with expiration dates for many of its provisions, most of them coming due in 2025. Although there are certain provisions, like 100% bonus depreciation on equipment, that begin to phase out starting in 2023, the 23 provisions relating to individual income taxes will end in 2025. The provisions scheduled to expire include the reduction of individual income tax rates, the increased child tax credit, increased AMT exemption phaseout, and the increased standard deduction. If nothing is modified before 2025, the tax code will revert to the 2017 law, filled with personal exemptions, limitations on itemized deductions, uncapped state and local tax deductions, and a variety of miscellaneous itemized deductions. One step forward, two steps back? Rest up planners!

If 2025 seems to too far in the future to worry about, here are some real time changes for 2022 to plan around:

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